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When Genius Failed: The Rise and Fall of Long Term Capital Management
by Roger Lowenstein
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List Price: £7.99
Our Price: £2.86
Your Save: £ 0.00 ( % )
Availability: Usually dispatched within 24 hours
Manufacturer: Fourth Estate
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Average Customer Rating:  
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Binding: Paperback
Dewey Decimal Number: 332
EAN: 9781841155043
ISBN: 1841155047
Label: Fourth Estate
Number Of Pages: 275
Publication Date: 2002-01-02
Publisher: Fourth Estate
Studio: Fourth Estate
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Spotlight customer reviews:
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Customer Rating: 
Summary: Interesting but difficult at times
Comment: I read this book due to the current economic climate and found it quite interesting.
I know nothing about stocks, shares and bonds so some of the book went over my head. It is quite easy to get the general gist of the story though and the sheer front these guys had was amazing (if it is all true).
How can anybody lose 4.5 billion in a few months is beyond me.
Interesting if you're in to Wall Street and the stock market.
Customer Rating:
Summary: The writing on the wall
Comment: I am not an expert in finance; neither do I want to look into the details of LTCM's trading strategies. I was therefore still at a loss about what the LTCM's intricate financial schemes was all about even when I finished reading this book. Nevertheless, Lowenstein's work has impressed me very much since I read his another book 'Buffett: The Making of An American Capitalist' a few months ago. 'When Genius Failed' didn't disappoint me as well.
History repeats itself. Somewhat different as the backdrop and story of those events might have been, numerous financial debacles have taken place so far. Writers of financial history seem to find no shortage of materials on financial disasters. Sooner or later other similar books on the story of money games will appear in bookshops.
Customer Rating:
Summary: Utterly imprecise
Comment: Horrible book. Very interesting topic but very poor story telling. The author clearly knows next to nothing about statistics and finance and did very poor research; non experts in the field will struggle to understand the key concepts behind the trading strategies. True, some of those trades were extremely complex, but at least the basic concepts could and should have been explained more clearly. If I didn't work in finance myself I would have understood very little.
One passage is particularly worth commenting on, when the author mentions theoretical models whereby asset "prices follow the normal distribution, or, in mathematical terms, the log-normal distribution". ??? Unless we speak a different language, this phrase means that the log-normal is the mathematical definition of what is commonly known as the normal distribution. The truth is of course very different: if data is lognormal, then its log is normally distributed, i.e. they are 2 different distributions, related but different!!! A mistake so huge I don't even have words to comment.
Customer Rating:
Summary: Essential Reading
Comment: It would be a shame if this book were confined to readers of the 'Business' section. It should be required reading for anyone whose life is affected by the machinations of the financial sector - i.e. everyone.
In itself the tale is one of high drama, but it helps that it's told by a writer with the ability to keep up the pace and energy throughout, despite the complexities and opaqueness of a lot of the subject matter - and then distil the argument into one killer sentence: "Neither the Nobel prize nor all the degrees mattered now; the professors were rolling the dice." This single phrase encapsulates the essence of the story. Emboldened by their initial success and oblivious to any flaws in their 'system' they took on the mind-set of the gambler in the casino who 'knows' he can beat the house and throws caution to the wind. Thus a buttoned-up bunch of academics and highly rational financiers succumbed to the not-always-rational dictates of markets, convinced to the end (and beyond) that it was the world outside their number-crunching computer programs that had got it 'wrong'.
To the layman a further irony seems to be contained in the fact that a group who'd focussed so much on translating the disciplines of science into the world of finance seemed to have ignored the market equivalent of the observer effect - the possibility that their own theorems might in some way influence behaviour in the markets, effectively making their 'rear-view mirror' calculations based on past experience if not redundant then less reliable than expected. Maybe in trying to follow the Black-Scholes paradigm contemporary players were adjusting market reactions in a way that computer progams premised on projections from the past simply didn't accommodate? Perhaps, paradoxically for such a cards-to-the-chest operation, they had signalled their own reactions in advance (revealing your strategy in any circumstance isn't the way to win at poker!). Or perhaps they were just victims of their own success - in securing such a major stake in the game they actually changed the rules and then set themselves up as an easy target to be picked off by their rivals as soon as the odds went against them. In any case, their belief in their own omniscience seems like an invitation to failure.
There's an element of shadenfreude in seeing arrogance get its come-uppance, but this is tempered by a (sometimes grudging) admiration for the way Meriwether was able to change the world around him through sheer force of his (albeit reserved) personality and (almost) bring it off - particularly after the apparent injustice of his demise at Salomon. If he'd been able to impose his more cautious impulses on to his gung-ho acolytes, or trust the gut instincts that had served him so well at Salomon over Nobel prize-winning theorems, his success wouldn't have been so short-lived. Still, you needn't feel too sorry for the partners who lost $1.9bn in five weeks - they would fare better than some of their employees, who ended up with nothing.
It gives you the sort of entertainment you get from watching a car wreck, as the banks scrabble round to find a way of protecting themselves - without doing too much for each other. Certainly there's an element of black comedy as one participant comments: '"They had a different view of the world ... they're completely self-interested." Suddenly these paragons of individual enterprise seethed with communitarian fervor.'!
More worryingly, given that little seems to have changed as a result in terms of the kind of improved reporting on derivatives called for by Lowenstein, it looks like, in this age of 'collateralized debt' instruments, more such debacles are almost inevitable - it's just the scale of the collapse that remains in the balance. One thing is for sure, the regulators are pretty much in the dark as far as derivative trading goes, and it seems we're dependent on threats of Mutually Assured Destruction to keep us above water if liquidity crises aren't going to sink the whole ship (I'll leave you to ponder how a lack of liquidity can sink a ship).
What I'm trying to say is that this book is as relevant today - if not more so - than when published, and suggests that the sub-prime problems that have almost submerged Northern Rock may be just the tip of the iceberg (sorry, I just can't get the image of the Titanic out of my head!), and Adam Applegarth's defence of his business model does resound with the injured pride and lack of comprehension that characterised the protestations of the LTCM partners as they continued to defend their models in the face of mounting disaster.
Meanwhile, the balancing act that the regulatory authorities face, between discouraging moral hazard and safeguarding the system from wreckless gambling seems increasingly precarious - and will continue to be, so long as extreme neoliberal sentiments dominate. No doubt those that resist even self-regulation would argue the the LTCM saga provides an object lesson in how markets can repair themselves - but it was a close run thing.
Customer Rating:
Summary: Good, but could do better
Comment: Last week I finished reading the book `When Genius Fails: The Rise and Fall of Long Term Capital Management'. Although the book was generally interesting for those interested in banking and Wall Street if your looking for book that documents the incredible rise and embarassing fall of (apperently) extremely intelligent individuals then I would suggest that you go for the Enron story instead. The two books are extremely similar in content but the Enron story is more colourful and gives a much better insight into the greed and ambition of the main players.
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Editorial Reviews:
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Customer Rating:
Summary: Interesting but difficult at times
Comment: I read this book due to the current economic climate and found it quite interesting.
I know nothing about stocks, shares and bonds so some of the book went over my head. It is quite easy to get the general gist of the story though and the sheer front these guys had was amazing (if it is all true).
How can anybody lose 4.5 billion in a few months is beyond me.
Interesting if you're in to Wall Street and the stock market.
Customer Rating:
Summary: The writing on the wall
Comment: I am not an expert in finance; neither do I want to look into the details of LTCM's trading strategies. I was therefore still at a loss about what the LTCM's intricate financial schemes was all about even when I finished reading this book. Nevertheless, Lowenstein's work has impressed me very much since I read his another book 'Buffett: The Making of An American Capitalist' a few months ago. 'When Genius Failed' didn't disappoint me as well.
History repeats itself. Somewhat different as the backdrop and story of those events might have been, numerous financial debacles have taken place so far. Writers of financial history seem to find no shortage of materials on financial disasters. Sooner or later other similar books on the story of money games will appear in bookshops.
Customer Rating:
Summary: Utterly imprecise
Comment: Horrible book. Very interesting topic but very poor story telling. The author clearly knows next to nothing about statistics and finance and did very poor research; non experts in the field will struggle to understand the key concepts behind the trading strategies. True, some of those trades were extremely complex, but at least the basic concepts could and should have been explained more clearly. If I didn't work in finance myself I would have understood very little.
One passage is particularly worth commenting on, when the author mentions theoretical models whereby asset "prices follow the normal distribution, or, in mathematical terms, the log-normal distribution". ??? Unless we speak a different language, this phrase means that the log-normal is the mathematical definition of what is commonly known as the normal distribution. The truth is of course very different: if data is lognormal, then its log is normally distributed, i.e. they are 2 different distributions, related but different!!! A mistake so huge I don't even have words to comment.
Customer Rating:
Summary: Essential Reading
Comment: It would be a shame if this book were confined to readers of the 'Business' section. It should be required reading for anyone whose life is affected by the machinations of the financial sector - i.e. everyone.
In itself the tale is one of high drama, but it helps that it's told by a writer with the ability to keep up the pace and energy throughout, despite the complexities and opaqueness of a lot of the subject matter - and then distil the argument into one killer sentence: "Neither the Nobel prize nor all the degrees mattered now; the professors were rolling the dice." This single phrase encapsulates the essence of the story. Emboldened by their initial success and oblivious to any flaws in their 'system' they took on the mind-set of the gambler in the casino who 'knows' he can beat the house and throws caution to the wind. Thus a buttoned-up bunch of academics and highly rational financiers succumbed to the not-always-rational dictates of markets, convinced to the end (and beyond) that it was the world outside their number-crunching computer programs that had got it 'wrong'.
To the layman a further irony seems to be contained in the fact that a group who'd focussed so much on translating the disciplines of science into the world of finance seemed to have ignored the market equivalent of the observer effect - the possibility that their own theorems might in some way influence behaviour in the markets, effectively making their 'rear-view mirror' calculations based on past experience if not redundant then less reliable than expected. Maybe in trying to follow the Black-Scholes paradigm contemporary players were adjusting market reactions in a way that computer progams premised on projections from the past simply didn't accommodate? Perhaps, paradoxically for such a cards-to-the-chest operation, they had signalled their own reactions in advance (revealing your strategy in any circumstance isn't the way to win at poker!). Or perhaps they were just victims of their own success - in securing such a major stake in the game they actually changed the rules and then set themselves up as an easy target to be picked off by their rivals as soon as the odds went against them. In any case, their belief in their own omniscience seems like an invitation to failure.
There's an element of shadenfreude in seeing arrogance get its come-uppance, but this is tempered by a (sometimes grudging) admiration for the way Meriwether was able to change the world around him through sheer force of his (albeit reserved) personality and (almost) bring it off - particularly after the apparent injustice of his demise at Salomon. If he'd been able to impose his more cautious impulses on to his gung-ho acolytes, or trust the gut instincts that had served him so well at Salomon over Nobel prize-winning theorems, his success wouldn't have been so short-lived. Still, you needn't feel too sorry for the partners who lost $1.9bn in five weeks - they would fare better than some of their employees, who ended up with nothing.
It gives you the sort of entertainment you get from watching a car wreck, as the banks scrabble round to find a way of protecting themselves - without doing too much for each other. Certainly there's an element of black comedy as one participant comments: '"They had a different view of the world ... they're completely self-interested." Suddenly these paragons of individual enterprise seethed with communitarian fervor.'!
More worryingly, given that little seems to have changed as a result in terms of the kind of improved reporting on derivatives called for by Lowenstein, it looks like, in this age of 'collateralized debt' instruments, more such debacles are almost inevitable - it's just the scale of the collapse that remains in the balance. One thing is for sure, the regulators are pretty much in the dark as far as derivative trading goes, and it seems we're dependent on threats of Mutually Assured Destruction to keep us above water if liquidity crises aren't going to sink the whole ship (I'll leave you to ponder how a lack of liquidity can sink a ship).
What I'm trying to say is that this book is as relevant today - if not more so - than when published, and suggests that the sub-prime problems that have almost submerged Northern Rock may be just the tip of the iceberg (sorry, I just can't get the image of the Titanic out of my head!), and Adam Applegarth's defence of his business model does resound with the injured pride and lack of comprehension that characterised the protestations of the LTCM partners as they continued to defend their models in the face of mounting disaster.
Meanwhile, the balancing act that the regulatory authorities face, between discouraging moral hazard and safeguarding the system from wreckless gambling seems increasingly precarious - and will continue to be, so long as extreme neoliberal sentiments dominate. No doubt those that resist even self-regulation would argue the the LTCM saga provides an object lesson in how markets can repair themselves - but it was a close run thing.
Customer Rating:
Summary: Good, but could do better
Comment: Last week I finished reading the book `When Genius Fails: The Rise and Fall of Long Term Capital Management'. Although the book was generally interesting for those interested in banking and Wall Street if your looking for book that documents the incredible rise and embarassing fall of (apperently) extremely intelligent individuals then I would suggest that you go for the Enron story instead. The two books are extremely similar in content but the Enron story is more colourful and gives a much better insight into the greed and ambition of the main players.
On September 23, 1998, the boardroom of the New York Fed was a tense place. Around the table sat the heads of every major Wall Street bank, the chairman of the New York Stock Exchange, and representatives from numerous European banks, each of whom had been summoned by the Fed to discuss the highly unusual prospect of rescuing what had, until then, been the envy of them all, the extraordinarily successful bond-trading firm of Long-Term Capital Management. Roger Lowenstein's When Genius Failed is the gripping story behind the Fed's unprecedented move, the incredible heights reached by LTCM, and its eventual dramatic demise. Lowenstein, a financial journalist and author of Buffet: The Making of an American Capitalist, uncovers and examines the personalities, academic expertise, professional relationships, and layers of numbers behind LTCM's roller-coaster ride with the precision and knowledge of a skilled surgeon. The fund's enigmatic founder, John Meriwether, spent almost 20 years at Salomon Brothers, where he formed its renowned Arbitrage Group by hiring academia's top financial economists. Though Meriwether left Salomon under a cloud of the SEC's wrath, he leapt into his next venture with ease, and enticed most of his former Salomon hires--and eventually even David Mullins, the former vice-chairman of the US Federal Reserve--to join him in starting a hedge fund that would beat all hedge funds. LTCM began trading in February 1994, after completing a road show that, despite the Ph.D.-touting partners' lack of social skills and their disdainful condescension of potential investors who couldn't rise to their intellectual level, netted a whopping 1.25 billion dollars. The fund would seek to earn a tiny spread on thousands of trades, "as if it were vacuuming nickels that others couldn't see," in the words of one of its Nobel laureate partners, Myron Scholes. And nickels it found. In its first two years, LTCM earned 1.6 billion dollars, profits that exceeded forty percent even after the partners' hefty cuts. By the spring of 1996 it was holding $140 billion in assets. But the end was soon in sight, and Lowenstein's detailed account of each successively worse month of 1998, culminating in a disastrous August and the partners' subsequent panicked moves, is riveting. The arbitrageur's world is a complicated one, and it might have served Lowenstein well to slow down at the start and explain in greater detail the complex terms of the more exotic species of investment flora that cram the book's pages. However, much of the intrigue of the Long-Term story lies in its dizzying pace (not to mention the dizzying amounts of money won and lost in the fund's short lifespan), and Lowenstein's smooth, conversational, but equally urgent tone carries it along well. The book is a compelling read for those who've always wondered what lay behind the Fed's controversial involvement with the LTCM hedge-fund debacle. --S. Ketchum
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